Sizing Up Competitive Situations 401demand is limited and extra flights are costly.) In Chapter 15, labor
and management find themselves in a similar position during contract
negotiations. While each side seeks to secure better terms for itself,
both have an interest in avoiding a costly strike. In short, a realistic
description of managerial strategies in competitive settings must
incorporate elements of common interest as well as conflict.
3.Communication and Agreement among Competitors. In the battle
for passengers, the competing airlines make independent decisions. If
the battle turns bitter and all airlines set numerous flights, the
eventual outcome may well be losses for all carriers. By contrast, if
rival airlines were allowed to communicate their intentions and
coordinate their operations, one would expect them to agree to
mutual flight reductions. (One also would expect cooperation on
other competitive dimensions, such as higher prices, less generous
frequent-flier programs, and so on.)
A competitive situation is called noncooperativeif players are
unable (or are not allowed) to communicate and coordinate their
behavior. For instance, the airlines, like almost all competing firms in
the United States, are required by law to play noncooperatively; any
form of collusion is prohibited. The situation is cooperativeif players
can communicate before taking action and form binding agreements
about what joint actions to take. A cartel, such as OPEC, in which a
group of firms agrees on price and output policy, is an example of a
cooperative setting.
In general, the more the players’ interests coincide, the more
significant is their ability (or inability) to communicate. In a two-
person zero-sum game, communication cannot benefit either
competitor. My gain is your loss, so there is nothing to agree about. In
settings involving both common and conflicting interests,
communication plays a complex role in determining the outcome.
Sometimes competitors can communicate to a limited degree but
must stop short of actual agreement on a mutual course of action.
Frequently, these communications—threats, promises, or even
bluffs—are intended to influence a competitor’s behavior. Other
times, firms take actions to signal their intent to one another, without
explicitly communicating. In addition, tacit communication can play a
role, as when understandings among competitors develop. Finally, in
negotiation settings, parties are free to communicate as they please in
attempting to reach an agreement.
4.Repeated or One-Shot Competition. Another important distinction
is whether the competition is one shot or ongoing—that is, whether
the same parties will be involved in similar situations in the future. For
instance, competition among airlines is ongoing. Similarly, whenc10GameTheoryandCompetitiveStrategy.qxd 9/29/11 1:33 PM Page 401